Purchasers Guide

A GUIDE FOR

ACQUIRING, SELLING AND OWNING

IMMOVABLE PROPERTY

IN CYPRUS

1. INTRODUCTION

This guide was made in order to assist all prospective buyers in understanding what they need to know for purchasing a property in Cyprus. Our experience over the years has enabled us to understand the concerns of clients wishing to purchase a property in Cyprus and we now wish to give something back.

This guide is divided to four sections:

A. Buying a property

B. Selling a property

C. Owning a property

D. Miscellaneous information

Purchasers must know all aspects before proceeding. In our guide, you will find all information required and a checklist of the things that you should do when you are purchasing.

SECTION A: BUYING A PROPERTY

2. COUNCIL OF MINISTERS APPROVAL

2.1 For Europeans, according to the Immovable Property Acquisition (Aliens) Law Cap. 109, as amended by Laws 52/69, 55/72, 50/90 and 54(1)/03, approval to acquire immovable property no such approval is required. There is no restriction on the number of properties and/or title deeds that they can buy. Since the 1st May 2004 when Cyprus joined the European Community, Europeans have also the right to buy land without any restriction on size or number of pieces.

2.2 Foreigners (non – Europeans) not residing in Cyprus can buy and acquire the Title Deed to only oneproperty in Cyprus, (house or flat). For this purpose, they will need the approval of the Council of Ministers which these days, is really just a formality. If they buy land, the size is limited to 4011 sq mtrs.

Applications to the Council of Ministers (for non Europeans) must be submitted to the District Administration Office of the district where the property is located. A copy of the Survey Plan, Building Permit, Contract of Sale and the Title Deed must accompany the application. When the approval is granted, provided that the separate Title Deed is available, the purchaser can acquire his/her Title Deed.

2. Legal Persons (Companies, Partnerships, etc.)

A legal person (company) who is registered according to the law of a member state of the E.U. and which has, as per the Constitution, the Head Office, the Central Administration and the main establishment, in the Republic of Cyprus or any other member state and the majority of the shares (at least 51%) is held by a Cypriot citizen or a citizen of a country member of the EU does not need a Council of Ministers Approval.

If the above conditions are not fulfilled then you will be required to secure a Council of Ministers Approval.

3. PURCHASING IMMOVABLE PROPERTY AND TITLE DEEDS

a) Buying Property with Title Deeds

Purchasers buying a property built some years ago or a one unit and not part of a complex, can acquire their Title Deed immediately. The procedure is exactly the same as in the U.K. It is wise to appoint a local Lawyer. The Lawyer must then make a search and if the results are satisfactory, contracts can be exchanged immediately. The Vendor then provides the Title Deed without delay.

Purchasers can feel safe as long as their lawyer acts as follows:

A search is made to confirm that the land on which the project has been built is registered on the vendor’s name and to make sure that is clear of any encumbrances.

That the Contract of Sale is stamped by the Tax Office and lodged with the Land Registry for Specific Performance purposes, (Law cap 232 as amended by the laws 50/70, 96/72 and 51(1)/95).

That the title deed is transferred on their names

b) Buying Property with no Title Deeds

Purchasers buying property which is part of a complex will probably not be able to get there title deed if it is a new complex. If it is a resale from a previous buyer, and not the developer, the title deed might have been issued. Even if it is not issued, your purchase can be safe and secured if the appropriate safeguards are taken by your lawyers.

Purchasers can feel safe as long as their lawyer acts as follows:

A search is made to confirm that the land on which the project has been built is on the vendor’s name and to make sure that is clear of any encumbrances. In the case of mortgages, matters become more complicated, but appropriate measures can and will be taken in order to ensure that your property will not be affected by them in any way.

That the Contract of Sale is stamped by the Tax Office and lodged with the Land Registry for Specific Performance purposes, (Law cap 232 as amended by the laws 50/70, 96/72 and 51(1)/95).

Investigation of the matter of issuance of title deed.

c) Buying a property under construction

Purchasers of a property under construction must follow a slightly different procedure and cannot acquire the Title Deed to their property immediately. The Title Deeds to new properties, or to properties which are part of a project, takes approximately 4-5 years following completion, to be issued.

Purchasers can feel safe as long as their lawyer acts as follows:

A search is made to confirm that the land on which the project has been built is registered on the vendor’s name and to make sure that is clear of any encumbrances. In the case of mortgages, matters become more complicated, but appropriate measures can and will be taken in order to ensure that your property will not be affected by them in any way.

Ensures that stage payments are in accordance with the progress of the work.

That the Contract of Sale is stamped by the Tax Office and lodged with the Land Registry for Specific Performance purposes, (Law cap 232 as amended by the laws 50/70, 96/72 and 51(1)/95).

Contracts must be stamped within 30 days of signing otherwise a penalty is charged and added to the cost of the stamps. The contract must also be lodged with the Land Registry Office within 6 months from the date of signing, failure to do so results in the right to lodge being lost, and the contract can then never be lodged.

4. STAMP DUTY

Before the contract is lodged in the Land Registry Office for specific performance purposes, it needs to be stamped by the Tax Office.

The Stamp Duty is calculated as follows:

0.15%

€0 – €170,800

0.2%

€170,800 and above

For example:If a home is purchased at the value of € 200,000 in Cyprus the stamp duty is as follows:€ 170,800.00 x 0.15% = € 256.20€ 29,200.00 x 0.2% = € 58.40Total Stamp Duty: € 314.60

The stamp duty must be paid within 30 days of signing the contract to avoid paying a penalty.

5. TRANSFER FEES NOW REDUCED by 50%

When Purchasers acquire their Title Deed they must pay transfer fees to the Government.The Transfer Fee is the most serious expense over and above the sale price that the purchaser bears, and is calculated as follows:

A client is selling his property, and wants some information regarding cancellation fees and capital gain taxes

6. CAPITAL GAIN TAXES

From the profit following the sale of a property, the first €17.086.14 (per person), a figure for inflation, transfer fees, Estate Agents fees (provided the agent is registered) and any additions to the property (provided receipts can be produced) are all free of tax. Capital Gains tax is then charged on the balance at the rate of 20%.

If the property sold has been the home of the Vendors for at least five years, €85.430.07 tax relief can be claimed.

When you sell your property you are liable to capital gain tax, which is 20% on your clear profit, after deducting €17.086.14 per person as tax relief, the inflation and any additions you made to the property provided that you have all the relevant receipts.

7. CANCELLATION FEES

Most of the developers charge cancellation fee as. We always argue with them because we consider it as unfair. When purchasing a property, make sure that a figure is agreed for future purposes. The new law of 2011 has allowed investors to sell by way of assignment and in this way avoiding the developer and any cancellation fees.

SECTION C: OWNING A PROPERTY

8. Section D Miscellaneaous

Sewerage Board taxes is also paid from the Vendors on your behalf until you acquire your title deeds.

Additional utilities and taxes that you will be responsible include electricity, water and municipality taxes.

9. QUESTIONS & ANSWERS

9.1 Lodging your contract for Specific Performance purposes

The lodging of the contract with the Land Registry Office (fee €50) is very important because the property is then blocked and the Vendor cannot sell it or transfer it to anyone else.

Neither can the property really be mortgaged by the Vendor as the banks are not in favour of waiting in line. In the unforeseen event that a Developer should suffer financial problems, the Purchasers must be satisfied first, then the banks. Hence it is in general, the policy of the banks to avoid the mortgage of the property by the Vendor.

If the contract is not lodged with the Land Registry, the Purchaser(s) cannot sue the Vendor requesting the specific property. He/she can only sue for the market value of the property at the date of the breach.

Furthermore, if the contract is lodged with the Land Registry Office the amount payable for transfer fees, which are payable when the Purchaser(s) acquire their Title Deed, is restricted and secured. By lodging the contract, the Land Registry is bound to take as the value of the property, the value at the date of the contract. In this way, the Purchaser(s) do not pay heavy transfer fees based on a valuation much after the date the property was purchased. Please see section 9 for further details regarding transfer fees.

9.2 My title deeds are not ready. Why?

There is no cause for concern as this is a standard process which takes time. The delay is primarily due to the rapid development which Cyprus has experienced during recent years, which essentially means the Government Authorities are exceptionally busy and are working against sizeable backlogs.

The Title Deeds take time to be issued because the Companies developing land must secure a Building Permit, a Certificate of Approval for the building, Division Permit and a Certificate of Approval for the Division, for submission to the Land Registry to issue separate Title Deeds. Government Departments are very busy and Title Deeds take some time to be released.

The global economic slowdown is assisting in this matter as the Land Registry and the covermet overall have taken an interest for the issuance of the title deeds. The lack of a separate Title Deed does not prevent a property owner from selling their property. In this instance a cancellation contract between the original purchaser and the Vendor, and a new contract of sale between the Vendor and the new purchaser will be drawn up.

Purchasers must, at the time of purchase, agree the cancellation fee that the Developer will charge, should the Purchaser decide to sell his/her property before the separate Title Deed is issued. It is advisable to include this agreement in the contract of sale.

9.3 Why do I have to pay more transfer fees? Is the Land Registry allowed to overvalue the property?

The Land Registry office do have the right to value a property above the contract price, this does not happen very often and on the occasions that it does, the valuation is such that there is just a small amount extra to pay. We did not say that a higher valuation was a certainty, but it is our responsibility to advise you that there is a possibility.

9.4 Why should I give a Power of Attorney?

The property will be in your name and I have absolutely no intention of putting the property in my name. The Power of Attorney enables me to appear in the Land Registry Office, on your behalf, to transfer the separate Title Deed of the property from the Developer’s name on to your names. Soon after the transfer fees are paid and the transfer has been made at the Land Registry Office, we will receive the Title Deeds. You can then either collect the originals and leave a copy in our files, or leave the original in our file for safe keeping and retain a copy, whichever you prefer.

The Power of Attorney is never used without your instruction to do so and can be revoked following the transfer if you so wish.

If you do not want to give me your Power of Attorney and you want to appear in the Land Registry Office yourselves, we do not have any problem with that. We will just wait until you are next in Cyprus and then you can come with us to the Land Registry Office.

9.5.1 What does it mean that I have Council of Ministers Approval?

It means that if the title deeds are available, you can acquire them. Alternatively, when the separate title deeds are ready for issue, you can acquire them. When separate title deeds are ready, the Developer will let you know and we will advise you accordingly.

9.5.2 Can I claim for VAT refund?

When someone is purchasing immovable property in Cyprus, there is not always VAT in the price. There is VAT only if the application for Planning permit was submitted after 2004 or if it is resale and the property was used for less than six months.

In case you have paid for VAT, you have the right to file a claim for refund of the VAT. Our firm can file the application on your behalf and be there for you every step of the way. VAT in Cyprus, is 19% at present.

9.6 PURCHASER’S CHECKLIST

1. Obtain reliable and professional local advice.

2. Before signing any agreement carry out a search at the District Lands office to check for encumbrances.

3. If the property to be purchased is a house or a flat, check whether there is a building permit and, if completed, whether a certificate or approval for the building has been obtained from the appropriate authority.

4. If the property to be purchased is a piece of land, check the following:

(a) Whether it has road access (without it, building is not possible);

(b) If the land is part of any zone or area where building is restricted; if so, find out the extent of the limitations;

(c) Whether the supply of water and electricity is possible and at what expense.

5. In all cases, check the availability of a telephone connection.

6. Do not enter into any contract before consulting a lawyer and being assured by the lawyer that the case is one in which the relevant permissions from the authorities would be granted.

7. When entering into a contract, check that there are proper securities and provisions ensuring:

(a) The eventual transfer of the property and the issue of a title deed free from any encumbrances;

(b) That the contract has provisions regarding the securing of relevant permissions from the authorities by the Vendor;

(c) That possession is delivered to the purchaser upon execution of the contract whre the building is completed and, if not completed, upon completion;

8. Ensure that the contract is signed by the seller in the presence of two witnesses and that are all competent to contract (including the witnesses);

9. If the seller is a company, ensure that all corporate actions have been properly taken for the valid execution of the contract.

10. As soon as practicable after the execution of the contract ensure that:

(a) An application is submitted to the local District Administration Office along with all necessary supporting documents for obtaining the permission of the Council of Ministers (where is required);

(b) A copy of the contract is lodged with the District Lands Office within two months of its execution, thus ensuring that the contract becomes a charge on the property and that it may be specifically performed.

11. Consult with your lawyer if any additional measures are necessary under the specific circumstances.

CAUTION: This information does not create a precedent. It is intended only as a general Guide and is not to be relied upon as a basis for any decision or outcome on the subject matter. Profession advice and consultation by lawyers as applicable to the specific subject matter in question and in accordance with the laws and regulations.